Is BigBear.ai a Buy?

Key Points

• Over the past 12 months, BigBear.ai's share price tripled.

• Despite operating in the white-hot AI sector, the company’s revenue is growing slowly.

• With a new CEO, a healthy backlog, and recent defense wins, the company has potential. But it still needs to prove it can execute.

BigBear.ai Holdings (NYSE: BBAI) has been outperforming the market lately as part of a broader rally in artificial intelligence (AI) stocks. Shares are up nearly 70% this year, and surged 420% over the past 12 months.

After its stellar run, does BigBear.ai belong in your portfolio? Here's some food for thought.

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What's driving BigBear.ai higher?

BigBear.ai provides AI-driven software that helps organizations analyze complex data and make crucial decisions. A sizable chunk of the company's revenue comes from government contracts, although its customers also include manufacturers, healthcare providers, and life sciences companies.

The stock has skyrocketed 140% over the past three months, despite underwhelming first-quarter results and just a smattering of positive news.

Working in its favor, though, is the fact that the company sits at the intersection of two hot zones in the market: AI and defense technology. With that in mind, it could be attracting investors who are looking for the next Palantir Technologies, an AI powerhouse that's up 410% over the past 12 months. Either way, it's likely that BigBear.ai is benefiting from strong sector momentum, and there's nothing wrong with that.

It's also worth noting that 27% of the float is controlled by short-sellers, which could put it on the radar of meme stock investors hoping for a short squeeze.

A short squeeze occurs when the stock price goes up, forcing short-sellers to cover their positions by purchasing shares, which juices the share price further.

Regardless of what's really pushing the stock higher, the recent rally seems a bit disconnected from the business' fundamentals.

Lukewarm growth in a hot sector

In the first quarter of 2025, BigBear.ai grew its revenue by 5% year over year, to $34.8 million. That might seem respectable on the surface, but keep in mind that the global AI market is projected to have a compound annual growth rate (CAGR) of 36% for the next five years, according to Grand View Research. In 2024, BigBear.ai grew its annual revenue by just 2%, and missed the low end of its revenue guidance by nearly $7 million.

BigBear.ai isn't profitable, but there were some encouraging signs in the first quarter. The company cut its net loss in half compared to the year-ago period, improving the per-share loss from $0.68 to $0.25. It also reduced its long-term debt by $58 million.

Still, there are some red flags. Selling, general, and administrative (SG&A) expenses -- non-production costs for things like sales commissions, advertising, rent, and office supplies -- ballooned 34% in the first quarter, outpacing revenue growth by a wide margin. If the company was investing heavily in SG&A to fuel its growth, you would expect to see stronger top-line acceleration.

When evaluating a company's operating performance, it can be helpful to look at adjusted EBITDA. This metric starts with earnings before interest, taxes, depreciation, and amortization (EBITDA) and strips out one-time or noncash items such as stock-based compensation, restructuring charges, and changes in the value of investor contracts.

In the first quarter of 2025, BigBear.ai reported an adjusted EBITDA loss of nearly $7 million, compared to a $1.6 million loss in the year-ago period. Management attributed the large spike to increased research and development spending and slower government funding that led to underutilized resources.

Reasons for optimism

If I could pick one key reason to consider starting a position in BigBear.ai, it would be the CEO, Kevin McAleenan, who was appointed in January. McAleenan was acting secretary of the Department of Homeland Security in President Donald Trump's first administration. He also co-founded AI vision provider Pangiam, which BigBear.ai acquired in 2024.

He plans to focus on several promising segments: border security, defense, intelligence, and crucial infrastructure. Given the current geopolitical tensions and the Trump administration's emphasis on border security, the company could be in a good position to take the next step in its growth under McAleenan's leadership.

It's also important to note that BigBear.ai ended the first quarter with a $385 million backlog and already secured a major contract win this year. In March, the Department of Defense awarded it a $13.2 million sole-source contract to deliver and maintain its Joint Staff J-35 ORION Decision Support Platform.

Is BigBear a buy now?

Because the company isn't profitable, we can use the price-to-sales ratio (P/S) to get a sense of its stock valuation. We'll compare it to Palantir and C3.ai, both of which have a presence in the government tech sector.

BBAI PS Ratio data by YCharts.

Based on the P/S metric, BigBear.ai and C3.ai are trading at comparable valuations (although the former is slightly higher), and BigBear is trading at a deep, deep discount to Palantir.

Palantir's valuation has sparked plenty of debate, but investors have shown they're willing to pay a premium for the company's explosive growth and strong momentum in the defense and commercial markets. In the first quarter, it reported 39% year-over-year revenue growth while closing 139 deals of at least $1 million.

For its fiscal 2025 (ended April 30), C3.ai reported 25% year-over-year revenue growth.

Because of its lackluster growth and persistent losses, BigBear.ai is a speculative bet, in my opinion. Until it proves it can accelerate growth and stabilize its fundamentals, I would stay on the sidelines.

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Josh Cable has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.